“Even more financial chaos”: Latest hike by Fed “risks throwing millions of Americans out of work”

Progressive economists and other pundits on Wednesday blasted Federal Reserve leaders for raising interest rates again despite concerns about recent bank failures and the impact of the quarter-point hike on the US and global economy.

“Once again, rate hikes will hit low-wage workers and the poor hardest – the same people who have already been hurt the most by rising prices.” tweeted Robert Reich, professor at the University of California, Berkeley and former Secretary of Labor. “Higher interest rates could also put more banks at risk and risk more financial chaos. The Fed is playing with fire.”

Fed Chairman Jerome Powell told Reporters Wednesday said that although the Federal Open Market Committee “considered” a pause in interest rate hikes following the collapse of Silicon Valley Bank (SVB) and Signature Bank, officials ultimately decided to limit the federal funds rate to a range of 4.75-5% increase from highest level since 2007.

“Chairman Powell’s Fed made a mistake in not stopping its extreme rate hikes,” explained Sen. Elizabeth Warren, D-Mass., a fierce critic of nine straight rate hikes since last March and the Fed’s regulatory rollbacks that fueled the bank’s collapse.

“I have been warning for months that the Fed’s current path risks putting millions of Americans out of work. We have many tools to fight inflation without throwing the economy off a cliff,” added Warren, who has repeatedly called for Powell to be ousted.

Patriotic Millionaires chairman Morris Pearl, a bank bailout expert and former managing director at BlackRock, similarly claimed that “the Fed’s decision to keep raising rates regardless of the circumstances is a dangerous mistake.”

Describing such hikes as “a blunt instrument,” he stressed that high interest rates “do not sit well with the economic realities the country is now facing – and will inevitably end up doing more harm than good.”

Pearl continued:

In our modern economy, high interest rates are simply not an effective way to combat inflation. Rate hikes have disproportionately hurt just a few sectors, such as housing, autos and some banks and investors, while many of the country’s biggest employers have been relatively unscathed.

Rising interest rates are failing to address one of the main causes of inflation, corporate price-gouging, and even exacerbate another long-term cause, lack of investment in new housing. Instead, the Fed is betting that cutting jobs and slowing wage growth is the best solution to inflation.

Higher interest rates may be a cure for inflation, but if they end up causing another banking crisis or pushing the economy into recession, the cure can be worse than the disease.

An analysis published Wednesday by Accountable.US explained that “the SVB’s failure was due in part to a ‘slump’ in bond value and $1.8 billion in ‘paper losses’ amid the Fed’s rate hikes. By the end of 2022, the Federal Deposit Insurance Corporation (FDIC) had warned that US banks were ‘sitting on $620 billion in unrealized losses,’ which could make their balance sheets appear healthier than they really are.”

The watchdog group noted that “at the end of 2022, the top five US banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and US Bank – reported a combined $233 billion in unrealized losses on held-to-maturity securities , including $54 billion in unrealized losses on government bonds. The same banks collectively reported $39.4 billion in unrealized losses on available-for-sale securities, including $12.7 billion in losses on available-for-sale US Treasury securities.”

Liz Zelnick, director of economic security and corporate power at Accountable.US, warned Wednesday that “a rate hike, even at a slower pace, will devastate Main Street and Wall Street alike, wiping out millions of jobs while simultaneously pushing government bonds into… sending a downward spiral,” and acknowledging that the recent banking turmoil prevented an even bigger rise than 25 basis points.

“A recession and a broken financial system are not worth the price of higher interest rates, which have failed miserably to stem the corporate greed epidemic and help drive up costs,” Zelnick added. “To date, the Federal Reserve and Chairman Jerome Powell have been more than willing to let average American families bear the brunt of their job-killing strategy—but are they willing to let their Wall Street banker friends go down with the ship? “

The Hill stressed that prior to Wednesday’s announcement, influential figures including economist Paul Krugman and analysts at Goldman Sachs had advocated a pause in rate hikes in a Monday letter to investors.

“Bank stress calls for a pause,” wrote analysts at Goldman Sachs. “Banking is not just another sector of the economy, as financial intermediation is vital to every sector. Therefore, managing stress in the banking system is the most immediate concern and must take precedence over other, less urgent goals for the moment. That’s what we expect policymakers and staff economists at the Fed will have the same view.”

During his press conference Wednesday, Powell insisted that “our banking system is sound and resilient, with strong capital and liquidity. We will continue to closely monitor conditions in the banking system and stand ready to use all of our tools as needed to keep it safe and sound.”

While Powell also stressed the Fed’s commitment to learning from the recent failures of SVB and Signature to prevent repeat events, both the bank’s collapse and a year of rate hikes have fueled calls for its ouster.

When asked by CNN’s Jake Tapper Wednesday if she’s ever directly told President Joe Biden to fire Powell, Warren said she wouldn’t discuss private calls, “but what I’m going to say is that I do.” made it very clear, both publicly and personally, that I didn’t think he should be confirmed as Fed Chairman. And I think he’s doing a really terrible job.”

“And he’s doing a terrible job on both fronts,” she said, referring to the Fed’s dual mandate. On oversight, Powell has “spent five years weakening the regulations for these multibillion-dollar banks,” and on monetary policy, he risks “pushing our economy into recession.”

“He’s trying to lay off two million people and one of the things we need to understand is he’s looking to increase the unemployment rate by more than one point in a single 12-month period. We’ve done that before in this country. In fact, we’ve done it 12 times. And out of all 12 times, how many times has it led to a recession?” she said. “The answer is 12.”


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